TIER expects economy to contract 1.91% this year

By Crystal Hsu / STAFF REPORTER

The Taiwan Institute of Economic Research (TIER, 台經院) yesterday cut its forecast for GDP growth this year to minus 1.91 percent from the minus 0.11 percent it projected in April, citing slow exports and a freeze in private investment.

Many manufacturers and service providers remain cautious about their business prospects on concerns of a slow recovery, although the worst of the downturn is over, the think tank said.

Chen Miao (陳淼), director of macroeconomic forecasting, said the global slump had proved more harmful than expected to the nation’s export-dependent economy, but the pace of deterioration had now subsided.

“Many firms are suffering from overproduction, with the financial crisis still dampening demand,” Chen told a media briefing.

TIER president David Hong (洪德生) said government stimulus measures had cushioned the fall, but were not enough to reverse the decline, while the economic benefits of warming cross-strait ties remained unclear.

Hong said he supported the proposed economic cooperation framework agreement (ECFA) with China, saying it would help remove or lower tariffs.

Hong said Taiwan’s GDP could drop 0.25 percent without the pact once ASEAN implements zero-tariff rates on virtually all imports within the trade region next year.

However, the figures are not certain, he said.

“Tariffs are relevant but not decisive,” Hong said. “There is no guarantee that China or the ASEAN signatories would import more Taiwanese goods if they were free of tariffs.”

With or without an ECFA, the government should address other trade issues with China as well, including investment protection and preventing double taxation, Hong said.

Hong said it was more important for companies to upgrade and innovate to remain competitive.

As economic activity remains weak, the number of manufacturers optimistic about their business prospects for the next six months dropped to 39.7 percent last month from 42 percent in May, the TIER report said.

Companies with neutral sentiment rose from 42.4 percent to 44.3 percent, while pessimists increased from 15.6 percent to 16 percent, the survey said.

The climate gauge for the manufacturing industry was 114.3 points last month from a revised 112.4 in May, while the index for the service industry stood at 117.75 points, from a revised 116.37 points a month earlier, the report said.